The Week Ahead: Can Job Growth be Improved?

Many current economic and policy questions share a common theme: Jobs!

Employment is a crucial indicator of the current economic situation, but future consumer spending also depends on jobs growth. Corporate profits and stock prices are similarly linked. And finally, we can depend on politicians to keep the issue in focus, especially in an election year.

There is a continuing concern about the pace of net job creation. Fed Chair Bernanke's comments last week suggested a concern that even these modest gains may be overstating economic growth. (More on that in the news of the week). This dramatic chart from David Altig at Macroblog shows just how badly employment growth has lagged past recoveries.

Others argue that recent job gains have been overstated, not intentionally, but by using exaggerated seasonal adjustments. Iacono Research has some interesting explanations and charts. Tim Iacono sees a problem looming in about a month, when the April jobs report is released. This chart shows why.

I will offer some thoughts for investors in the conclusion, but first, let us do our regular review of the week's data. For those who are trying to time the market with some simplistic formula, I urge you to read this week's conclusion.
 
Background on "Weighing the Week Ahead"
There are many good sources for a comprehensive weekly review. I single out what will be most important in the coming week. My theme is an expert guess about what we will be watching on TV and reading in the mainstream media. It is a focus on what I think is important for my trading and client portfolios.
 
Unlike my other articles, I am not trying to develop a focused, logical argument with supporting data on a single theme. I am sharing conclusions. Sometimes these are topics that I have already written about, and others are on my agenda. I am trying to put the news in context.
 
Readers often disagree with my conclusions. Do not be bashful. Join in and comment about what we should expect in the days ahead. This weekly piece emphasizes my opinions about what is really important and how to put the news in context. I have had great success with my approach, but feel free to disagree. That is what makes a market!
 
Last Week's Data
Each week I break down events into good and bad. Often there is "ugly" and on rare occasion something really good. My working definition of "good" has two components:

1. The news is market-friendly. Our personal policy preferences are not relevant for this test. And especially -- no politics.
2. It is better than expectations.

• Ben Bernanke hints at more QE? Well not really, but that was the market interpretation. I did not expect his speech to signal any policy change, nor did I hear one. But don't take my word for it. Here is the verdict from Tim Duy:

• Chinese PMI beats expectations reading 53.1 versus 50.5 expected. It was only a week ago that US markets were reacting to a weak "flash index" report and I warned that few understood these numbers. Here is a report that helps to explain why the strength might be overstated.
• The final revision to Q4 GDP had a hidden positive, the growth in GDI (Gross Domestic Income). Normally the two should be about equal, but GDI trailed for a bit causing skeptics to maintain that GDP was not an accurate indicator of the economy. GDI was up 4.4% vs 3.0% for GDP. The Bonddad Blog does a further analysis, noting the significance of the data to the ECRI recession argument.

• Michigan economists see improvement. As regular readers know, I have a soft spot for all things Michigan. I think this is a project from a grad seminar, but I read the alumni publication and I get to have fun also!)

• Michigan consumer confidence also edged a little higher to 76.2. I love the chart from Doug Short that shows at a glance the relationship to the economy and to recessions. Doug notes that despite recent improvement, the index is still significantly below the average for non-recession years (88.1). His article also has great charts for other confidence indicators.

• Initial jobless claims were slightly lower, but that was only because the prior week was revised 16K higher. This makes the last two weeks a bit disappointing, with a new plateau of just over 350K. I have noted that this series only covers job losses, not job creation. This research note from the St. Louis Fed supports the idea that the series is helpful in predicting the job market during expansions, but not as good during recessions.
• Personal income trailed expectations. Personal spending was higher, but that cannot be sustained without corresponding income growth and was partly influenced by higher gas prices (also a continuing negative).
• The Eurozone bailout fund was increased to 700 billion euros, but this was the bottom end of expectations. It will require votes of approval by participating countries. The evidence so far is that the existing European policies (especially LTRO) have addressed imminent systemic risk, but done little to help the European economy. Rebecca Wilder is an economist specializing in fixed income markets and emphasizing Europe. She produces my favorite kind of argument -- one relentlessly driven by data. Her current conclusion is that the various policies have not yet helped the overall economy, but she concedes that the jury is still out.

• The St. Louis Financial Stress Index.
• The key measures from our "Felix" ETF model.
• An updated analysis of recession probability.

• A description of the SuperIndex components and methods.
• A collection of research reports, including how to improve the ECRI method, using the Conference Board's LEI, and deciding how much recession warning you need.
• A sample report. This shows the richness of the weekly information, including differing time frames for recession warnings as well as an updated GDP forecast.

1. The Seduction of Market Timing. The secret of sales is to claim a lot, whether or not you can deliver.
2. Do You Adjust Your Price Targets? Most do not -- and this ranges from market experts to the average investor. Unless you are constantly doing a re-evaluation, you are missing out.